FCA: consolidator deals not valuing client interests

The FCA has found advice firms are often unable to show good evidence they considered client needs when buying clients from other firms.

The regulator first began looking at consolidation in the advice market at the end of 2015, as New Model Adviser® revealed at the time.

In a report published yesterday, the FCA said the regulator was ‘disappointed…that none of the firms assessed were able to consistently show that clients’ needs were suitably considered’ when client banks were bought.

The FCA looked at six firms as part of its report, but did not name those firms.

Areas of concern

In its report the FCA said it was concerned that new service levels and charges were not presented to clients at the start of the relationship after a firm was bought.

The regulator said it was concerned that acquiring firms often did not present new clients with information about making complaints against the original firm. Client were also not told they could opt out of a service offered by the acquirer.

‘Whenever there is a change to a firm providing services, or a change to the services themselves, firms are reminded they must act in the client’s best interests and provide information to the client which is fair, clear and not misleading,’ the FCA said.

According to FCA rules, when a deal is completed, the acquiring firm must get the permission of the client before ‘providing and charging for their services’.

However the FCA said it had found examples where the new firm ‘did not always ensure they had the client’s agreement before arranging for facilitated adviser charges to be redirected to their own bank accounts’.

‘This approach made us consider whether a firm had complied with the requirement to have a client’s consent before actually providing those services,’ the report said.

When moving clients into new investments, the FCA said some of the client files ‘raised concern’ that the acquirer was not considering the ‘impact of contingent initial adviser charges on the future value of client investments’.

The FCA said in some cases it was not clear if a charge was going to be applied to the client if a recommendation was made to move the client into a new investment.

Conflicts of interest

Another area highlighted by the FCA was the potential for conflicts of interests arising.

Specifically the FCA said it found cases of acquiring firms paying more if the clients had certain investments. The report also raised concern about adviser remuneration, which in some cases was based on the level of replacement business.

The FCA raised concern about the role of contingent adviser charging within acquisitions, and said in some cases clients were not evaluating the ‘impact of contingent initial adviser charges on the future value of client investments.'

The regulator said it had contacted the six firms involved about its findings.

‘All firms involved in the project have since taken action to improve their practices. We expect all other relevant firms to now consider the content of this report and assess whether they need to improve their own practices and procedures,' it said.

Although the FCA did not say who the six firms it looked at were, New Model Adviser® has previously reported on a number of firms which have been engaging with the regulator on these issues.

In August last year New Model Adviser® revealed the consolidator Attivo had been asked to overhaul client communications after the FCA found the firm had not been clear enough telling clients about changes to charges and service once they were acquired.

Midlands-based firm Newell Palmer was asked by the regulator to provide information on how it went about acquisitions of client banks and subsequently told to it needed to be ‘clearer with clients about what was going on’.

Two major consolidators, Bellpenny and Succession, were also asked to hand over client files to the regulator at the end of 2015.

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Client segmentation has been pushed up the regulatory agenda by Product Intervention and Product Governance Sourcebook (Prod) rules, which came into force on 3 January 2018. Here is what the experts think

Client segmentation has been pushed up the regulatory agenda by Product Intervention and Product Governance Sourcebook (Prod) rules, which came into force on 3 January 2018. Here is what the experts think

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